AMD Gains In Discrete Graphics Market Share, So What?

Advanced Micro Devices recently reported its Q1 earnings and based on we have updated our price estimate to $9.63 from $8.85. Besides talking about the adoption of its Brazos platform, AMD also highlighted growth in its mobile discrete graphics processors market share. Despite this headway in the mobile GPU market, we see the upside value limited for the time being given the low relative importance of graphics to AMD’s overall business. AMD competes with Intel and Nvidia in microprocessor and graphics business. Our price estimate for AMD of $9.63 is slightly above the current market price.

AMD’s market share has rapidly increased from 38% in 2007 to 58% in 2010 in the discrete notebook GPU segment as the company worked out some issues related to ATI acquisition few years back.

The key question is that will the rapid market share gains continue?

Given the high current share and Nvidia being a big player in this market as well, we believe that it is unlikely. However AMD states in its recent earnings that it had a record quarter with regards to mobile discrete GPU revenues and believes that its gaining market share.

The company states:

In Graphics, we continued to advance our leadership in a number of important ways. First, we launched the HD 6990, truly the world’s fastest graphic card. Second, we set an all-time record for mobile discrete revenue. And third, we are now the exclusive provider of discrete graphics solutions for Apple’s iMac and MacBook Pro platforms. In short, we believe that we continue to gain market share in the mobile GPUs in the quarter.

This brings us to the question: So What?

Suppose we are wrong and AMD indeed continues its blitzkrieg in mobile discrete GPU market, even then further value add to the company is relatively low. Discrete notebook GPUs constitute only about 5.3% to AMD’s estimated value according to our current forecasts. Even if AMD reached to 80% share in the discrete notebook GPU market by end of our forecast period, further upside to our price estimate would only be about 3%.

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